Government presents New Bill amending the Registration Act, 1908 - introducing transparency and accessibility in the system of Land registration

. . . a move towards a system of conclusive land titles

Flipping through the pages of today's economic times, i have come across this very important legal amendments proposed to be introduced by the Government vide bill.

The bill relates amendments to be made in the Registration Act, 1908. Economic Times has reported out that, the bill has been introduced with a view to curb corruption in the land and real estate deals. Changes in the registration Act includes mandatory registration of power of attorney transfers, registration of property in the state where it is located, allowing inspection of registered documents. 

It also states that, the main objective of introducing such changes in the act would bring more clarity in determining the market value of land, thereby helping the collector to arrive at a more equitable value of the land during the process of acquisition. The formula that is to be used for calculating compensation is the current market or registered value of land. It has also been reported that, if the registration is been made mandatory and frequent, the same could easily be vetted and reviewed by people for over a longer period of time. Hence, there would be accuracy in the reporting of land rates, especially in the rural areas. 

The proposed amendments as reported are as follows:

1. Compulsory registration of power of attorney and certificate of sale.

This has been proposed in order to curb the practice of transfer of property without registration and payment of requisite stamp duty as determined by the state and registration duties.

2. Documents related to the transfer can only be registered in the states where the property is situated. 

This proposed change has been introduced by keeping in view the prevailing anomalous situation. Presently, people owing property in more than one state can register property in any of the states in which they own property, irrespective of the location. This is where people pay the lowest stamp duty, thereby resulting into huge revenue loss. 

3. Registered documents will now be made available for public inspection. This will allow verification of ownership/ title.

4. Registration officers has now have the right to refuse registration in case where the documents pertains to transfer of property belonging to the government/ charities or under litigation or where the transfer has been banned by the state government.

Considering all the above proposed amendments, we know that the main intent of the registration act, 1908 is to ensure availability of all deals relating to the land and property, so as to ensure accuracy in the land records. Hence, the bill stating the proposed amendments is about bringing in the transparency in the sale and purchase of land by way of introducing accessibility in the system of land registration. 

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CBDT procedure and criteria for selection of scrutiny cases for the financial year 2013-14

INSTRUCTION NO 10/2013, Dated: August 5, 2013

Subject: Procedure and criteria for selection of scrutiny cases under compulsory manual during the financial-year 2013-2014-regd.

In supersession of earlier instructions on the above subject, the Board hereby lays down the following procedure and criteria for manual selection of returns/cases for scrutiny during the financial-year 2013-2014:

2. The targets for completion of scrutiny assessments and strategy of framing quality assessments as contained in Central Action plan document for Financial Year 2013-2014 has to be complied with. It is being reiterated that all scrutiny assessments including the cases selected under manual criteria will be completed through AST system software only.

3. The following categories of cases / returns shall be compulsorily scrutinized:-

a) Cases where value of international transaction as defined u/s 92B of IT Act exceeds Rs. 15 crores.

b) Cases involving addition in an earlier assessment year on the issue of transfer pricing in excess of Rs. 10 Crores or more which is confirmed in appeal or is pending before an appellate authority.

c) Cases involving addition in an earlier assessment year in excess of Rs. 10 lacs on a substantial and recurring question of law or fact which is confirmed in appeal or is pending before an appellate authority.

d) all assessments pertaining to Survey under section 133A of the IT Act excluding the cases where there are no impounded books of accounts/documents and returned income excluding any disclosure made during the Survey is not less than returned income of preceding assessment year. However, where assessee retracts the disclosure made during the Survey will not be covered by this exclusion.

e) Assessment in search and seizure cases to be made under sections 158B, 158BC, 158BD, 153A & 153C read with 143(3) of the IT Act.

f) All returns filed in response to notice u/s 147/148 of the IT Act.

g) Cases claiming exemption of income u/s 11 or u/s 10(23C) which are hit by proviso(s) to Section 2(15) of IT Act.

h) Entities which received Donations from countries abroad in excess of Rs. One crore during the Financial Year 2011-2012 (relevant for the A.Yr. 2012-2013) under the provisions of Foreign Contribution Regulation Act (FCRA). Such Information is maintained by Ministry of Home Affairs and is available on its Website (http://mha.nic.in/fcra.htm). Respective Cadre-Controlling chief Commissioners / Directors – General of Income-tax may identify the cases pertaining to their respective jurisdiction after downloading from the website and disseminate the information to various field offices.

i) Cases in respect of which information is received from other Government Department(s) or other authorities pointing out tax-evasion. The Assessing Officer shall record reasons in such cases and take approval from jurisdictional CCIT/DGIT before selecting such case for scrutiny.

4. In order to ensure the quality of assessment orders, CCsIT/DGsIT would evolve suitable monitoring mechanism. They shall analyse at least 50 quality assessments of their respective charges and send the report to respective Zonal Member with copy to Member (IT) with suggestions for improvement by 30th April, 2014. CCsIT/DGsIT would further ensure that cases selected for publication in ‘let us share’ are picked up from quality assessments as reported.

... xxx ...

Exemption u/s. 54F is available even when the assessee purchases residential property exclusively in the name of the spouse and not under joint-ownership

From time to time i get mails from the readers of my blog querying of various types of legal clarifications on the issues pertaining to Income Tax law. This morning i received a mail from one of such readers. His query was that:

When an individual assessee sells a residential house property and within the prescribed time frame invests the proceeds in a new residential house property, but exclusively in the name of his/ her spouse (not in joint name), whether in such case he/ she would still get the deduction u/s. 54F of the Income Tax Act, 1961?

I was glad to share the latest legal scenario of the provision with the reader. I found that, a similar legal issue has been decided recently by Delhi High Court in the case Commissioner of Income Tax vs. Kamal Wahal, reported in the Taxmann [2013] 30 taxmann.com 34 (Delhi).

Hon'ble Delhi High court has decided the following issues:

1. Whether for claiming deduction of capital gains under section 54F, new residential house needs to be purchased by assessee exclusively in his own name?

2. Whether, an exemption could be denied where the assessee has purchased a new house in the name of his wife and not in name of any stranger who was unconnected with him, if the entire investment had come out of proceeds of old property?

While deciding the matter Hon'ble High court has considered the "Rule of purposive construction". 

Briefly the facts of the case is as under:

The assessee is an individual. He retired from IOCL. His income consists of income by way of salary, from house property and other sources. He inherited 50% share in a residential house from his father. This was in July 1968. The other half share was inherited by his brother. In the year which ended on 31.03.2008, both the brothers jointly sold the property which gave rise to proportionate capital gains in the assessee's hands. In computing the capital gains, the assessee claimed deduction under Section 54F on the ground that the sale proceeds were invested in the acquisition of a vacant plot for Rs. 31,25,100/­ and the purchase of a residential house for Rs. 34,35,700/­ in the name of his wife.

The assessing officer while completing the assessment, took the view that under Section 54F, the investment in the residential house should be made in the assessee's name and in as much as the residential house was purchased by the assessee in the name of his wife, the deduction was not allowable. He reduced the deduction and computed the capital gains accordingly.

The assessee went in appeal before the commissioner of income tax (Appeals) and successfully got relief on the basis of judicial precedents (Madras High Court in CIT v. V. Natarajan [2006] 287 ITR 271/154 Taxman 399 and that of the Andhra Pradesh High Court in Mir Gulam Ali Khan v. CIT [1987] 165 ITR 228/[1986] 28 Taxman 572). 

The revenue preferred an appeal before the Tribunal questioning the decision of the CIT(Appeals). The Tribunal, however, by the impugned order, agreed with the decision of the CIT (Appeals) and in doing so followed the judgment of the Madras and Andhra Pradesh High Courts cited supra and also another judgment of the Karnataka High Court in DIT, International Taxation v. Mrs. Jennifer Bhide [2011] 203 Taxman 208/15 taxmann.com 82. It also noted the judgment of the Bombay High Court in Prakash v. ITO [2008] 173 Taxman 311 in which a contrary view was taken but preferred the view taken by the Madras and Karnataka High Courts adopting the rule laid down by the Supreme Court in CIT v. Vegetable Products Ltd [1973] 88 ITR 192 which says that if a statutory provision is capable of more than one view, then the view which favours the tax payer should be preferred. The Tribunal also observed that, Section 54F being a beneficial provision enacted for encouraging investment in residential houses should be liberally interpreted. 

Hon'ble Delhi High court arrived at a conclusion after considering the following legal points:

1. Purposive construction was preferred against a literal construction, more so when even applying the literal construction, there is nothing in the section to show that the house should be purchased in the name of the assessee only. As a matter of fact, High court observed that, Section 54F in terms does not require that, the new residential property shall be purchased in the name of the assessee. It merely states that, the assessee should purchase/ construct "a residential house".

2. The assessee in the present case has not purchased the new house in the name of a stranger or somebody who is unconnected with him. He has purchased it only in the name of his wife. Further, it also observed that the entire investment has come out of the sale proceeds and that there was no contribution from the assessee's wife.

Based on the above findings of the High court, the matter was decided in favor of the assessee after taking into consideration the objective of the provision of sec-54F of the Income Tax Act, 1961 read with the Rule of Purposive Construction.

Corporate Governance - Guidelines set by Ministry of Corporate Affairs

The Ministry of Corporate Affairs (MCA) has been continuously taking various steps towards promoting good corporate governance, investor education and  protection & advocacy for adoption of Corporate Social Responsibility (CSR) by companies for inclusive growth of the Corporate Sector. 

In the light of suggestions received by the Ministry, it is advised that a company having paid up capital of not less than Rs. 10 crores or having more than 100 members may maintain a functional web-site containing the following basic information about the company as at the close of the previous year stating the date thereof  within three months in order to boost investor confidence and to foster economic growth of the country: 

i. General information about the company and details of the company’s business including risks & concerns, industry scenario, brand information, how long in the market and core competence and market share in company’s products/services. 

ii. Details of the Board of Directors, names & addresses of Directors, details of promoters of the company and their shareholding, Code of conduct for board members & senior management of the company, remuneration of Managing/Whole time Directors, if any, No. & dates of Board meetings & AGMs held in last three years and attendance of each director at the meetings. 

iii. Brief description of the Audit Committee, its reference, composition and the meetings & attendance during last three years. 

iv. Financial information about the company: Important financial information/ratios, such as total paid up capital, equity/preferential share, capital, nominal value of shares, total turnover, profit after tax, EPS, P/E ratio and total amount spent on Corporate Social Responsibility (CSR) & its percentage of profits after tax. Comparison of important ratios with industry including EPS, P/E ratio and dividend. 

v. If there is any subsidiary company, details thereof stating the name of the company, percentage of share holding, total paid up capital, turnover, profit after tax of the subsidiary during last three years.

vi. Information about shares issued during last five years, including share price, if listed, shareholding pattern, details of the Registrar & Transfer agents, dates of book closures, date of dividend payment for the previous year, name, designation & contact number of compliance officer and information about company’s IPO/FPO including withdrawn, if any. 

vii. Investor’s information like composition of Shareholders Committee/Investors Grievances Committee and its reference, details of shareholder’s complaints during the last three years – received, resolved and pending and press release, if any for investors/shareholders, auditor’s qualification if any, penalty imposed by any Govt. agency / court, complaints about insider trading transaction in the last three years.

viii. Particulars of shares of the company acquired/sold by the Directors and their relatives during last three years. 

ix. Investor’s complaint mechanism - Under investor’s section of website, the company should also have facility for lodging online investor complaint & its follow up till resolution. 

x. Details of related parties and transactions with them for the last three years and details of the compliance of mandatory requirements. 

xi. Company’s initiatives towards corporate social responsibilities and environment protection with the details of initiative taken and expenditure incurred by the company during the last three years. 

xii. Details about important pending litigation likely to affect the financial position and the working results of the company.

Source: http://www.mca.gov.in/Ministry/pdf/voluntary_guidelines.pdf 

TDS @1% on Transfer of Immovable Property

TDS ON IMMOVABLE PROPERTY - 194 -IA

~ Budget 2013 ~

Object of bringing into effect the provision of Sec-194- IA: 

The Finance Minister has proposed that, in order to introduce a reporting mechanism of transactions in the real estate sector and also to collect tax, deduction of tax at source has been mandated for transfer of immovable property (other than agricultural land) to a resident transferor @1 % of the transfer consideration.

The reason for introducing section 194-IA is to widen the tax base and to check tax avoidance measures pertaining to the real estate sector.

Note: Any transaction other than agricultural land involving apparent consideration of Rs.50 lakh or more is liable for tax deduction at source under section 194-IA.

The provision sec-194I seeks deduction of tax at source on transfer of certain immovable property other than agricultural land referred to in section 2(14). Any person being a transferee who is liable to pay to a resident by way of consideration for transfer of any immovable property shall at the time of credit of such sum to the account of the transferor or at the time of payment in whatever manner, has to deduct tax at source at 1 percent. The liability to deduct tax at source is at the time of actual payment or credit of such sum to the account of the transferor whichever is earlier. The threshold limit for application of tax deduction at source is Rs.50 lakhs. Where the transaction is less than Rs. 50 lakhs, the liability to deduct tax at source will not be applicable. Since the expression used in the section is "any sum by way of consideration" the provisions of section 50C will not interfere. Hence, tax deduction at source will be with reference to apparent consideration only.

This provision Sec-194 -IA would be applicable in respect of transactions effected on or after 01.06.2013.

Budget Highlights 2013

 BUDGET HIGHLIGHTS 2013

• No changes in Income Tax rates or slabs, Rs 2000 credit for those earning up to Rs 5 lakh per annum.
• Surcharge of 10% on Rs 1 crore plus income earners
• Surcharge on corporate taxes increased.
• Education cess to continue
• Imposes 5-10% surcharge on local companies income above Rs 10 crore
• Immovable Property transaction: TDS of 1% to be levied on transactions above Rs 50 lakh.
• STT rates cut on equity futures to 0.01% from 0.017%
• 1 per cent TDS on sale of immovable property, not applicable to agricultural land.
• To levy CTT on non agri futures at 0.01%
• Direct Tax Code remains work in progress
• Modified GAAR to come into effect from April 1st 2016
• No change in peak basic customs duty
• Extend tax benefit to electrical vehicles
• Customs duty unchanged for non agri products
• To levy 2% customs, CVD on coal imports
• Higher customs duty on set top boxes
• Duty cut on leather, leather good machines
• Exempts imported ships and vessels from duty
• Excise duty on SUVs raised from 27% to 30%. Will not apply to SUVs registered as taxis
• Excise duty raised by18% for cigarettes
• All AC restaurants will have to pay service tax whether or not they serve alcohol.
• Increase in import duty on high end motor vehicles from 75% to 100%; and on motor cycles from 60% to 75%
• Luxury imported items to be cost more
• Mobile phones, priced above Rs 2000, get more expensive
• 100 per cent Customs Duty on luxury cars
• Set Top box import duty raised
• Gold duty free limit raised to Rs 50,000 for men and to Rs 1 lakh for women travelers
• Cut abatement rate on expensive homes to 75%
• One time amnesty scheme for service tax defaulters
• Lower securities transaction tax on mutual fund payouts
• Donation made to National children’s fund to be fully exempt
• Royalty tax hiked to 25% from 10%
• Zero custom duty for electrical machinery
• Cut abatement rate on expensive homes to 75%

Principles of Natural Justice - Application in Law of Taxation

APPLICATION OF PRINCIPLES 

OF NATURAL JUSTICE IN LAW OF TAXATION

Principles of natural justice are soul of an administration of justice and need to be adhered to in order to make the order as a just and fair order.The concept of speaking order is the essential part of the principles of natural justice. The principles of natural justice have come to be known as being part of the guarantee contained in Article 14 of our Constitution i.e. "The concept of equality". Violation of a rule of natural justice results in arbitrariness and hence is equivalent to that of discrimination. Therefore, violation of principle of natural justice by a State results into violation of Article 14.

The essential characteristic of ‘Natural Justice’ is famously known by two maxims, namely, 

(a) Nemo judex in causa sua i.e. no man can be judge in his own cause;

(b) Audi alteram partem i.e. no man shall be condemned unheard 

In simple terms, it can be referred to ‘Impartiality’ and ‘Fairness’ in order to meet Justice. The elementary principle of Natural Justice in Law of Taxation is that, the assessee should have knowledge of the material which is going to be used against him so that he may be able to meet it. 

What exactly are these principles which are necessary for making a just and fair decision-making by the assessing authority under the income tax act?

(1) The approach of the income tax authorities shall not be unreasonable. In administering a tax law irritation to the assessee is inevitable; an officer is bound to do his duty irrespective of the susceptibilities of the assessees or even at the risk of hurting their amour propre. However, it would not justify the officers functioning under the Act doing things in an unreasonable way.  This was observed by Hon'ble High Court of Andhra Pradesh in the case of K. Rudra Rao vs. ITO.   
  
(2) Proper service of notice within due time is one of the mandatory principles of Natural Justice. For effective compliance by an assessee, notice of hearing must be served on time, providing reasonable opportunity to the assessee. Hence, before any action is taken, the assessee should be given a show cause  notice against any proposed action and seek his explanation towards the same. Therefore, any order passed without giving notice is against the principles of natural justice. Further, the affected party shall be served with  specific and unambiguous notice as the very objective of serving notice is to provide a reasonable opportunity for compliance.

(3) An opportunity of being heard is one of the most important component of "principle of Natural Justice". The right to call and cross-examine witnesses is a part of natural justice. In the matter of practice of Tax Law, giving an opportunity to a person of being heard must necessarily depend on the facts and circumstances of each case. Hon'ble Supreme court in the case of Ram Chandran vs. Union of India has observed the following,- 

" In principle, there ought to be an observance of natural justice called equally at both stages ............ If natural justice is violated at the first stage, the right of appeal is not so much a true right of appeal as a corrected initial hearing, instead of fair trial followed by appeal, the procedure is reduced to unfair trial followed by fair trial."

It was further said that the Tribunal acted without jurisdiction in relying on the data supplied by the Income ax Department behind the back of the appellant company, and without giving it an opportunity to rebut or explain the same.

(4) Right to inspection of records - The Apex Court has ruled in the case of Suraj Mall Mohta & Co. vs. A.V. Vishwanatha Sastry that, assessment proceedings conducted by the Income-tax Officers are quasi-judicial proceedings and all the incidents of such quasi-judicial proceedings have to be observed before the result is arrived at. The assessee has a right to inspect the record and all relevant documents before he is called upon to lead evidence in rebuttal. That, the said right has not been taken away by any express provision of the Income-tax Act.

(5) while passing an assessment order, provisions of the Income Tax Act should be applied in a considerate manner. 

(6) the government authorities must act in a fair and not partisan manner. It is a fact that, the taxing authorities exercise quasi-judicial powers and in doing so they must act in a fair and partisan manner, It may be that, their part of the duty is to ensure that no tax which is legitimately due from an assessee should remain uncovered, however, at the same time they must not act which may indicate that the scales are weighted against the assessee. They should be deemed to have exercised in a proper and judicious manner. 

Hon'ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd. vs. C.I.T. has emphasized the issue of applicability of "The Principle of Natural Justice". Application was filed by the assessee under the provisions of Article-136 of the Constitution, contended that, the assessment order which was passed u/s. 23 (3) of the Income Tax Act was made in violation of the principles of Natural Justice. It observed:

" It is......surprising that the Tribunal took from the representative of the department statement of gross profit rates of other cotton mills without showing the statement to the assessee and without giving him an opportunity to show that that statement had no relevancy whatsoever to the case of the mill in question." 

(7) Representation by a legal representative in a case - Section 288 (1) of the Income-tax Act, 1961 provides that any assessee, who is required to attend before any Income tax Authority or the Income Tax Appellate Tribunal in connection to any proceedings under the Act, otherwise than when required under section 131 to attend personally for examination on oath or affirmation, may subject to the other provisions of section 288 attend by an authorized representative. Recording of statement at the time of survey or search under the Income Tax Act, is one of such situation where presence of a legal representative is mandatory to give a fair and reasonable opportunity to  the assessee. For example - at the time of  recording of statements u/s 131 of the Income-tax Act, 1961, an assessee is entitled to a legal representative. 

(8) The assessing authority shall not be biased while arriving at a reasonable conclusion in a case. The word ‘Bias’ means prejudice, show of favour or disfavour, antagonism, spite, hostility, that sways the mind. The basic principle underlying this rule is that, justice must not only be done but must also appear to be done. 

The Supreme Court in Ashok Kumar Yadav vs. State of Haryana observed,-

"It is one of the fundamental principles of our jurisprudence that no man can be a judge in his own cause and that if there is a reasonable likelihood of bias it is in accordance with natural justice and commonsense that the justice likely to be so biased should be incapacitated from sitting. The question is not whether the judge is actually biased or in fact decides partially, but whether there is real likelihood of bias. What is objectionable in such a case is not that the decision is actually tainted with bias but that the Circumstances are such as to create a reasonable apprehension in the mind of others that there is a likelihood of bias affecting the decision." 

This is extended to all cases where an independent mind has to be applied in order to arrive at a fair & reasonable decision between the rival claims of two parties. The quasi judicial authorities must not forget that, Justice is not the function of the courts alone, but it's also the duty of all those who are expected to reasonably and fairly decide between two contending parties. 

(9) An Order shall be a speaking order. It should contain detailed recording of evidence presented by both the parties, explanation of both the sides and arguments raised by both sides followed by reasons for arriving at a particular view. The Supreme Court in S. N. Mukherjee vs. UOI observed:-

"The recording of reasons by an administrative authority serves a salutary purpose, namely it excludes chances of arbitrariness and assures a degree of fairness in the process of decision making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions, which are subject to appeal, revision or judicial review. Therefore, the requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective of the fact whether the decision is subject to appeal, revision or judicial review. It is however not required that the reasons should be as elaborate as in the decision of a Court of law, the extent and nature of the reasons would depend on particular facts and circumstances."

In view of the above, if any order is made in violation of principles of natural justice, it would be void ab-initio and would be liable to be annulled  & cancelled. 

To conclude, it is pertinent to mention that income tax laws are procedural and require strict compliance by assessee. Laws which are implemented, unless applied fairly, justice cannot be arrived at true sense. Further, procedural safeguards not necessarily ensure fair outcome especially while dealing with tax cases.  Failure of maintaining any one of these principles often lead to unending tax litigation. Hence, there is nothing where one can guarantee fair application of law and rules. However, authorities are expected to follow the above principles in a balanced way in relation to each given case after taking into consideration the facts and circumstances of the same. 

... Thank you ... ! 

Sec-80IB (10)- Amendment to the section effective from 01.04.2005 is prospective in nature for the purpose of claiming deduction

In the case of Manan Corporation vs. Assistance Commissioner of Income Tax, Hon'ble High Court of Gujarat has held that, amendment in the provision of sec-80IB (10) of the Income Tax Act, 1961 is prospective in nature for the purpose of deduction claimed by an assessee. In the present case the assessee claimed deduction under section 80-IB (10) for two projects. The principal objection is of the non-fulfillment of the condition of limitation for built up area being more than 1500 sq. feet and its ratio to commercial shops being more than 5% of the created built up area of housing project or 2000 sq feet which ever is less. According to the Assessing Officer, such assessee would not be eligible for the deduction.

It was contended by the assessee that, condition of limiting the commercial establishment/shop to 2000 sq.feet came in force with effect from 1.4.2005 and, therefore, the same would be applicable for the projects approved on or after 1.4.2005 and as the approval of both these projects was prior to 31.3.2005 i.e. 28.12.2004 for project no. 1 and 18.1.2003 for Project no. 2. 

Hence, the amended provision would have no application for these projects. Such contentions was not accepted and after completing the assessment, claim of appellant regarding the deduction under Section 80IB(10) was disallowed. 

Hon'ble CIT (Appeals) favored the assessee and allowed the deduction. 

Revenue appealed against the said order of CIT (Appeals) where heavy reliance was placed on the judgment of Bombay High Court rendered in the case of CIT v. Brahma Associates [2011] 333 ITR 289/197 Taxman 459/9 taxmann.com 289 (Bom.) on the count that such amendment can not be not respected in absence of explicit provision and should be held to have effect retrospectively as were argued before the Tribunal for and on behalf of the assessee that neither the Bombay High Court nor the Special Bench has held that clause (d) of Section 80IB(10) is applicable to those projects, which were approved on or before 31st March, 2005. Both the decisions have held that amendment of Section 80IB(10) is applicable prospectively.

The Tribunal concluded that the assessee is not eligible for deduction under Section 80IB(10) because it did not comply with the requirement of Clause (d) of Section 80IB(10), which is applicable from 1.4.2005 regardless of date of approval. It was further stated that this would be applicable to all those projects, which were approved by the competent authority. In respect of even those housing projects approved before 31.3.2005, as no explanation has been carved out by specifying that the amended provisions are applicable in respect of those projects which are approved on or after 1.4.2005 but before 31.3.2008. It denied such benefit to the applicant by further holding that the Legislature if wanted to exempt old projects from the operation of clause (d) then, it could have been specified by making a specific provision or new provision being applicable to only those housing projects, which are approved on or after 31.3.2005 but before 31.3.2008 and since that was not the case, the same was denied.

"Section 80-IB(10) prior to the amendment of 1.4.2005:

Sub-section (10), before substitution by Finance (No. 2) Act, 2004, stood as under:

"(10) The amount of profits in case of an undertaking developing and building housing projects approved before the 31st day of March, 2005 by a local authority, shall be hundred per cent. of the profits derived in any previous year relevant to any assessment year from such housing project if,-

(a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998;

(b)  the project is on the size of a plot of land which has minimum area of one acre; and

(c)  the residential unit has a minimum built-up area of one thousand square feet where such residential unit is situated within the cities of Delhi or Mumbai or within twenty-five kilometers from the municipal limits of these cities and one thousand and fiver hundred square feet at any other place."

"Section 80IB(10) in the post-amendment period :-

"(10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, 2008 by a local authority shall be hundred per cent. of the profits derived in the previous year relevant to any assessment year from such housing project if,-

(a)  such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes such construction-

(i)  in a case where a housing project has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008;

(ii)  in a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April, 2004 but not later than the 31st day of March, 2005, within four years from the end of the financial year in which the housing project is approved by the local authority.

(iii) in a case where a housing project has been approved by the local authority on or after the 1st day of April, 2005, within five years from the end of the financial year in which the housing project is approved by the local authority.

Explanation-For the purposes of this clause,-

(i)  in a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority;

(ii) the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority;

(b)  the project is on the size of a plot of land which has a minimum area of one acre:

Provided that nothing contained in clause (a) or clause (b) shall apply to a housing project carried out in accordance with a scheme framed by the Central Government or a State Government for reconstruction or redevelopment of existing buildings in areas declared to be slum areas under any law for the time being in force and such scheme is notified by the Board in this behalf;

(c)  the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the cities of Delhi or Mumbai or within twenty-five kilometers from the municipal limits of these cities and one thousand and five hundred square feet at any other place;

(d)  the built-up area of the shops and other commercial establishments included in the housing project does not exceed three per cent. of the aggregate built-up area of the housing project of five thousand square feet, whichever is higher."

Section 80IB(10) provides for deduction of 100% of the profit derived by an undertaking developing and building housing projects, subject to certain conditions. It can be also noted that amended provision provides for time limit for completion of the project, which was not there in the earlier Section. It will be apt to mention that the issue regarding construction of shopping in the housing project in accordance with the permission of the Municipal laws was requested to be considered adequate for the purpose of Section 80IB(10). It also further can be deduced that the deduction which was available if the project is on a plot land of minimum area of 1 acre has been in the amended provision liberalized in accordance with the scheme framed by the Central or the State Government. Again, the deduction was available if the built up area for the residential unit does not exceed 1000 feet in the city of Delhi, Mumbai or within 25 kms. from Municipal Limit of these cities and 1500 sq.feet at any other place. This 'built up' area appears to have been defined in the amended provision.

Question that requires to be answered by the Court:

Whether the deduction u/s. 80IB (10) will be applied in respect of the housing projects, which have been approved and commenced prior to 1.4.2005?

High Court held as under,-

Observation of facts:

1) Both the projects were approved by the local authorities. 

2) As per the sanctioned plan of the local authorities that the entire project has been carried out. Building completion permission was also obtained. 

3) The assessee followed the project completion method for claiming the profit admittedly prior to 31-3-2005. 

4) As towards project 1- The whole project was approved and completed prior to the insertion of amended provision of section 80-IB (10) with effect from 1-4-2005.

5) Project 2 - The housing project was approved by the local authority as is apparent from the certificate of the Municipal Corporation and the ratio worked out of commercial offices to the total built up area for residential project is 3.5 per cent.

6) The built up area of commercial user in terms of the shop is below 6 per cent. 

Question of Law & Decision:-

Whether the amendment in question would have a bearing on the claim of assessee whose project is approved prior to the amendment which became effective from 1-4-2005?

The projects essentially remained residential housing projects and therefore neither on the ground of absence of such provision of commercial shops nor on account of such commercial construction having exceeded the area contemplated in the prospective amendment can be made applicable to the assessee whose plans are sanctioned as per the prevalent rules and regulations by the local authority for denying the benefit of deduction of profit derived in the previous year relevant to the assessment year as made available otherwise under the statute.

The entire object of deduction under section 80-IB is to facilitate construction of residential housing project and while approving such project when initially there was no restriction and by amendment as stated permissible ratio for construction is 5 per cent of the total built up area, reduction of this ratio to 3 per cent of the total built up area has to be necessarily on prospective basis. 

The criteria to hold the amendment in question retrospective are absent as there is no explicit and specific wording expressing retrospectivity. 

Above discussion cumulatively when examined with the objectives and intent it sought to achieve in bringing about the provision of section 80-IB(10), this amended taxing statute requires to be interpreted in favor of the assessee rather than insisting upon strict compliance leading to absurdity. 

It can be also held that this being a substantive amendment and not a clarificatory amendment, the amendment of this nature cannot have retrospective effect.

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Sec- 54F - Claim of deduction u/s. 54F is available only when the assessee completes construction of new residential property within three years

Anu Agarwal

vs.

Income-tax Officer

Hon'ble I.T.A.T. Chandigarh has held that, when an assessee sells a property but had failed to construct new residential house within the specified period on plot purchased by her/him out of the sale proceeds of that property, the assessee was not entitled to deduction claimed under section 54F of the I.T. Act, 1961.

Facts of the case:

The assessee had sold a property during the year which was purchased. After reducing the indexed cost capital gain from the sale of said property was worked out. The assessee invested in the purchase of plot on which residential house was to be constructed. On the basis of this investment proportionate deduction u/s 54F was claimed. However, the house could not be constructed. 

During assessment proceedings the A.O. observed that as per provisions of section 54F the assessee was required either to purchase within a period of one year before or two years after the date on which the transfer took place or complete the construction of residential house within a period of three years. The assessee purchased the plot the assessee was also required to complete the construction of a new house within a specified period and where no construction had taken place, the deduction u/s 54F could not be allowed. Accordingly he disallowed deduction u/s 54F.

SUBMISSION OF APPELLANT BEFORE C.I.T (A):

1. Only proportionate deduction out of the total capital gain was claimed and tax was paid on balance of the capital gain. Since the assessee could not complete the construction, therefore, the addition can be made only after the period of three years expired and period of three years expired in AY 2011-2012.
2. It was further submitted that it was a matter of common sense that whether the property has been constructed or not, would be known only in the year when the time is to expire. 
3. Reliance was also placed on the decision of Hon'ble Allahabad High Court in case of Ranjit Narang v. CIT [2009] 317 ITR 332.

CIT(A) observed that the assessee has not started the work of construction on the said plot, therefore, the claim of deduction u/s 54F was not acceptable. 

Observation of sec-54F:

On plain reading of Section 54F of the Income Tax ACT, 1961, it clearly shows that, the deduction under this section is allowable only in case where the assessee within a period of one year before or two years after the date on which the transfer took place purchases, or has within a period of three years after that date constructed the residential house. Therefore, if the assessee has not purchased or constructed the house within the specified period the deduction is not available. Hon'ble I.T.A.T. has held that, there was no evidence to prove that assessee wanted to start construction and if the tax was allowed to be postponed merely on the basis of purchase of plot then no assessee would pay correct taxes during the year and postpone the payment of taxes by merely purchasing the plot. Hence,  the same could be intention of the provisions of section 54F. Therefore, upheld the order of the CIT(A).

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